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During the first three quarters of 2016, new rentals by IT companies and manufacturers combined with a virtually frozen office supply to cut the huge vacancy overhang. Nevertheless, Kyiv office vacancies remain high compared to other European cities.

Kyiv’s total vacancy rate shrank to 19.4 percent at the end of the third quarter of 2016, according to real estate consultancy Jones Lang LaSalle, or JLL. This is down from 27.9 percent two years earlier -- a 30 percent drop.

"The tentative economic revival is expected to accelerate the business activity," property firm CBRE wrote in a recent analysis of the first half of 2016. "At the same time, vivid recovery of the demand for office space is conditional on the positive employment patterns. Thus, we expect occupier demand to remain in ‘slow recovery’ mode strengthening by the end of the year."

Grade A office vacancies declined to 27.6 percent, from 35.6 percent one year ago. Grade B vacancies dropped to 17 percent, from 20.9 percent one year ago.

In the third quarter of 2016, net absorption amounted to 30,900 square meters, more than twice the figure in the quarter of last year, according to JLL.

Nonetheless, "the vacancy rate in Kyiv is one of the highest among European capitals," JLL wrote. Of 18 major cities surveyed by JLL, Kyiv had the highest vacancy rate, slightly higher than Athens and Moscow.

Tenants Trade Up

Manufacturing and IT companies were the most active tenants of 2016 so far. Each sector claimed 34 percent of new property demand, JLL found. Media companies were a distant second with 13 percent of new demand.

According to CBRE, occupiers in 2016 have sought to upgrade the quality of their office space under better lease terms. A "visible trend" was that of companies moving from Class B to Class A business centers, especially buildings that entered the market in 2013 - 2015.

Most notable deals included Ukrtransnafta and Mondelez International moving to Senator BC, a Class A center, according to CBRE.

Prime base rents did not change this year, staying at $340 per square meter per year. That puts Kyiv in the middle of JLL’s 18-city survey, just above Warsaw, St. Petersburg and Budapest.

In Kyiv, Podol has the lowest vacancy rate, with 10.6 percent overall -- 11.6 percent for Class B and just 3.8 percent for Class A. Meanwhile, the Left Bank has the highest office vacancy rate -- 22.9 percent.

Office Construction Frozen

With 80,000 square meters of vacant office space in Kyiv, construction has virtually stopped. In 2016, the only major space added to the market was the BC Lagoda Building, a Class B property with 9,000 square meters of gross leasing area.

In the first nine months of 2016, the total amount of office space commissioned, 16,100 sq m, was less than half of the space commissioned last year.

Caption: The Senator Business Center, a Class A property, saw some of the biggest office rental deals of the year, according to the CBRE. But, two years after opening, it is still only half full. (Photo: Colliers International)

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